IMF Executive Board Concludes 2006 Article IV Consultation with Liberia

Public Information Notice (PIN) No. 06/47
May 2, 2006

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The Staff Report for the 2005 Article IV Consultation with Liberia may be made available at a later stage if the authorities consent.

On April 26, 2006, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with The Republic of Liberia.1


The Liberian economy continued to recover in 2005, largely driven by donor activities. Real GDP is estimated to have grown by 5.3 percent in 2005, following a modest growth of 2.6 percent in 2004. This reflected the gradual improvement of security in rural areas, and restoration of activity in those sectors benefiting from donor assistance (mainly the service sector). Exports remain depressed, largely owing to continued UN sanctions on timber and diamond exports, while import levels remain high due mainly to large donor assistance. International reserves remained at a very low level, reflecting the continued financial weakness of the Central Bank of Liberia (CBL). Price and exchange rate developments reflect the return of relative stability to Liberia. Recently, however, there have been signs of a rise in inflation, in part reflecting higher donor expenditure. The Liberian dollar has been trading in a range of 55-60 Liberian dollars per U.S. dollar for the last 12 months.

Immediately following the inauguration of President Ellen Johnson-Sirleaf, the new government implemented several key steps to begin addressing long-standing problems in financial management and economic governance. These included: (i) the strict enforcement of pre-shipment inspections for imports and exports; (ii) more prudent budget allotments for line ministries; (iii) the reestablishment of the Cash Management Committee (CMCo) to contain expenditures within available cash revenues; and (iv) the initiation of a review of all concessions and contracts signed by the National Transitional Government of Liberia (NTGL). The CBL, while still running a cash deficit, is also taking steps to strengthen its budgetary management.

For 2006, the economy is expected to continue to recover, based on strong donor inflows and a revival of rural activities, following the reestablishment of security and return of refugees to their communities. Real GDP is projected to grow by about 8 percent, led by agriculture and services. Notwithstanding the large donor presence, inflation is expected to remain modest, being contained to single digits. With a gradual decline in rubber exports and further increase in donor-funded imports, the trade deficit is projected to widen further.

Executive Board Assessment

Executive Directors commended the new Liberian authorities' resolve to work closely with their international partners in addressing the daunting challenges of rebuilding Liberia's economy and reducing pervasive poverty. As a first key step, Directors welcomed the agreement that had been reached on an ambitious macroeconomic program for the period February-September 2006 to be monitored by the Fund staff. They stressed that strengthening public financial management, improving economic governance, and rebuilding essential capacity and infrastructure are essential to place Liberia on a path toward sustained economic recovery and poverty reduction.

Directors were encouraged by the new government's endorsement of the Governance and Economic Management Program (GEMAP), which aims to strengthen economic governance and financial management, and help to rebuild Liberia's key economic institutions. They welcomed the authorities' early actions to reverse the weakening of public financial management that had occurred under previous governments, including through the enforcement of pre-shipment inspections, more prudent budget allotments for line ministries, and the re-activation of the CMCo to contain expenditures within available cash revenues.

Directors agreed that further decisive steps to strengthen public expenditure management would be key to ensuring that scarce resources are channeled to their most effective uses. They urged the authorities to establish an effective and transparent budgeting process, including planning, execution, and internal controls. In the short run, Directors stressed the importance of ensuring that allotments to line Ministries are consistent with available resources, and of fully implementing the interim commitment control system to prevent the accumulation of new payments arrears.

Directors urged the authorities to persevere with their efforts to raise the level of public revenues. They encouraged them to continue rigorous enforcement of pre-shipment inspections, to strengthen the Large Taxpayer Unit, and to review and rationalize the extensive list of duty exemptions.

Directors noted that the weak financial position of the CBL continues to affect the rebuilding of scarce foreign exchange reserves and the capacity to implement effective monetary and exchange rate policies. While they welcomed efforts to minimize the CBL's cash deficit in 2006, Directors urged the new management to take appropriate measures to eliminate this deficit as soon as possible. They called for a strengthening of the regulatory functions of the central bank, and emphasized that it will also be essential to continue with efforts to strengthen the domestic banking sector through developing and implementing restructuring plans for undercapitalized banks.

Directors generally agreed that the current framework of pursuing price stability through maintaining a broadly stable exchange rate remains appropriate in the current dollarized environment. Directors cautioned, however, that trends in the demand for local currency should be carefully assessed. They also encouraged the authorities to continue with efforts to strengthen the domestic financial sector in order to eventually allow for a more active monetary policy.

Directors welcomed the new government's determination to implement a policy of zero tolerance of corruption. In this regard, they encouraged the authorities to develop a national anti-corruption strategy, and to commence its implementation as soon as practicable. Directors also urged the government to complete the review of concessions, contracts and licenses granted under the previous government and make rapid progress in meeting the requirements for lifting UN sanctions. In this connection, the authorities were encouraged to increase transparency in the forestry sector in line with the guidelines of the Extractive Industries Transparency Initiative (EITI).

Directors noted the challenges involved in addressing Liberia's high internal debt and unsustainable external debt. They urged the authorities to complete the process of verifying outstanding obligations, which will require the support of donors and creditors, and to develop a strategy to address domestic payments arrears. Directors concurred that satisfactory implementation of the staff monitored program (SMP), along with continued repayments to the Fund, would be important for providing a basis for considering the timely de-escalation of the Fund's remedial measures. Prompt and sufficient indications of support from donors and strong performance under the SMP would be important steps toward the clearance of arrears to the Fund, and a formal IMF arrangement. Satisfactory performance under such an arrangement would help pave the way toward Liberia's timely participation in the HIPC Initiative and the Multilateral Debt Relief Initiative, and, in turn would lead to a resolution of Liberia's debt overhang. Directors welcomed the start of the work on developing an interim Poverty Reduction Strategy Paper.

Directors noted that the limited availability and poor quality of key economic data continue to hamper effective surveillance. They encouraged the authorities to seek technical assistance, including from the Fund, to improve basic economic data, especially the national accounts, consumer price index, and the balance of payments, as well as basic data on social indicators.

Liberia: Selected Economic and Financial Indicators, 2002-06

  2002 2003 2004 2005 2006
  Est. Est. Est. Est. Proj.

  (Annual percentage change, unless otherwise indicated)

National income and prices


Real GDP

3.7 -31.3 2.6 5.3 7.7

Consumer prices (annual average) 1/

14.2 10.3 3.6 6.9 8.0

Nominal GDP (in millions of U.S. dollars)

559 435 497 548 624

GDP deflator (in U.S. dollars)

-0.7 13.3 11.3 4.9 5.7

External sector (in U.S. dollar terms)


Exports of goods, f.o.b.

30.1 -34.5 -4.7 8.0 2.3

Imports of goods, f.o.b.

-6.3 -3.6 91.4 2.1 13.6

Terms of trade

20.3 21.1 4.9 3.1 2.9

Official exchange rate (Liberian dollars per U.S.


dollar; end of period)

65.0 50.5 54.5 56.5 ...

Broad money (rate of growth) 2/

n.a. 8.3 49.3 35.7 16.2

Reserve money

n.a. 17.6 31.4 27.2 15.6

Velocity (GDP relative to broad money)

12.5 6.6 5.8 4.9 4.8
  (In percent of GDP)

Central government operations (January-December)


Total revenue and grants

13.0 10.9 13.9 15.2 19.0

Of which: total revenue

13.0 10.2 13.7 14.5 15.0

Total expenditure and net lending

14.3 10.3 14.3 14.8 19.0

Of which: current expenditure

4.6 5.6 12.3 13.1 13.7

Overall fiscal balance (cash basis)

-1.3 0.6 0.0 0.0 0.0

External sector


Current account balance, including grants (deficit, -)

-3.4 -18.2 -13.2 -1.9 -10.8

Of which: public interest payments due

-11.2 -12.1 -12.8 -14.9 -15.9

Current account balance, excluding grants (deficit, -)

-11.0 -22.7 -51.3 -54.2 -59.3

Trade balance (deficit, -)

3.8 -7.1 -33.1 -29.4 -31.4

Exports, f.o.b.

29.8 25.0 20.9 20.5 18.4

Imports, f.o.b.

-26.0 -32.2 -54.0 -49.9 -49.8

Public sector external debt outstanding (total)

545.5 772.8 751.9 667.3 605.4
  (In millions of U.S. dollars, unless otherwise indicated)

Current account balance including grants (deficit, -)

-19.2 -79.2 -65.5 -10.3 -67.4

Trade balance (deficit, -)

21.1 -31.1 -164.2 -161.4 -195.9

CBL's net foreign exchange position

0.5 -0.3 3.8 9.0 16.1

(in months of imports of goods and services)

0.0 0.0 0.1 0.3 0.5

Sources: Liberian authorities; and IMF staff estimates and projections.

1/ Technical adjustments are made to the CPI for 2004 and 2005 in light of the replacement of some items subject to CPI survey in mid-2004.

2/ Defined as Liberian currency outside banks plus demand, time, and savings deposits in Liberian and U.S. dollars.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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